The Fear Factor

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Most companies know that they need to carefully manage the economic costs of experimentation—the expenditures on people, research, prototyping, and training required to test and refine unproven ideas. But few pay heed to the social costs, which can be just as high but harder to measure.

Because experiments always carry the risk of failure, many employees avoid them—fearing embarrassment and loss of status if their idea fails.

Because experiments always carry the risk of failure, many employees avoid them. They fear the embarrassment and loss of status that failure can bring. Companies often unwittingly reinforce this natural tendency when they promote an organizational commitment to “error free” work or announce a “zero tolerance for failure” ethic. Such policies, however well intentioned, can create a culture averse to experimentation and, by extension, to innovation.

Permission To Fail

To test the connection between cultures and experimentation, I recently worked with Amy Edmondson and Stefan Thomke, both assistant professors at Harvard Business School, to conduct a study of a large, Midwestern health care organization. The company was deploying a Web site that would provide administrators and caregivers with a single access point for retrieving the most up-to-date clinical information. Previously, health care workers had to log on to several different systems to access patient information that may or may not have been updated with data from other departments. Because there was no formal training course for the system, employees had to experiment with it to gain proficiency.

We surveyed 688 employees throughout the organization—which comprised five teaching hospitals, 30 health care centers, and 120 outpatient clinics—asking them a series of questions about how they used the new technology and about the managerial culture within their units. We divided the employees into five levels of status—at the higher levels were doctors and administrators; below them were nurses, medical students, clerks, and dieticians—in order to gauge whether organizational standing inﬂuenced the tendency to experiment.

We found that individuals were more willing to experiment with the new system—to try out different software applications and to test new system features—when their department managers consistently did two things: explicitly stated that making mistakes would be okay, and refrained from punishing employees for errors. Managers who gave mixed signals, such as verbally encouraging experimentation while maintaining a reward system that punished failure, created confusion and mistrust among employees. Experimentation was much rarer in those departments.

Managers who explicitly state that making mistakes is okay and who don’t punish employees for errors create an environment that nurtures innovation.

The effects of an inconsistent message were particularly strong among lower-status individuals, who tended to have the greatest fear of failure. Medical students, for example, need to demonstrate their competence in front of others for advancement; they often assume that a failed experiment could harm their careers. In our study, lower-status employees used the Web system only when management’s actions, statements, and rewards clearly and uniformly indicated that failures were expected. By contrast, higher-level individuals were more willing to road test the technology, even when they received mixed signals about the organization’s attitude toward failure. They were less fearful that failure would impede their careers.

Contrary to conventional wisdom, allowing employees room to fail didn’t diminish their performance. Indeed, the employees who experimented the most ended up being the most proficient and satisfied with the new technology—and the quickest to integrate it into their everyday work. They reported that they were able to use their time with patients more efficiently, which resulted in improved care.

Status Matters

Two lessons for managers come out of our research. First, experimentation pays off. It empowers employees to methodically mold new business ideas into productive, profitable results—even when their initial experiments don’t work as planned.

Second, employee status matters. Different kinds of management intervention are required to encourage experimentation at different levels of an organization. Lower-status employees need clear social and organizational cues: don’t tell them to innovate and experiment unless you are willing to overlook the failures that will inevitably occur and overhaul your reward system. Higher-status employees may not need explicit permission to experiment. They should be held accountable for bottom-line performance but should also be given room to make mistakes along the way.

An organization that effectively nurtures its employees’ new ideas and encourages experimentation is well on its way to creating a lasting competence for innovation—and a valuable source of competitive advantage.

A version of this article appeared in the January 2001 issue of Harvard Business Review.

Fiona Lee is an assistant professor of psychology and business administration at the University of Michigan in Ann Arbor.